Authorities near unearthing Rs40 billion refund scam3 min read

KARACHI: Authorities smelt at least Rs40 billion of sales tax refund scam involving a latest flurry of suspiciously well-heeled bank accounts unearthed by the FIA, which were suspected to channelise fake trade invoices, people with knowledge of the matter said on Saturday.

Sources said the latest discoveries of fake bank accounts by the Federal Investigation Agency (FIA) will unfold mega sales tax refund scam as thousands of bogus companies were found registered to issue fake and ‘flying’ invoices.

Recently, the FIA detected transactions amounting billions of rupees in a bank account owned by Muhammad Qadir, an ice cream seller. The bank account was allegedly opened using Qadir’s computerised national identity card number and huge transactions were found made through the account.

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Further investigation into the case revealed that a company with the name of Ocean Enterprises was registered in 2004 with a Regional Tax Office (RTO), Karachi as importer and wholesaler. The company’s sales tax registration was suspended in June 2013 as it was found issuing and receiving ‘fake’ invoices to facilitate registered individuals in obtaining refunds or input adjustment. But, surprisingly Ocean Enterprises is still active as it filed annual return for the tax year 2017.

Sources in the Federal Board of Revenue (FBR) said Ocean Enterprises is one of 151 companies which were created for illegal activities, and were suspended or blacklisted in 2013.

Another company Western International was under interrogation by the federal agencies for causing huge monetary losses to national exchequer.

Sources said the cases were referred to FIA in November 2017 for investigation into sales tax refund scam and nexus of registered and bogus companies on the directives of Public Accounts Committee.

An official at the RTO said three RTOs in Karachi blacklisted 4,000 units in 2013 as they allegedly obtained illegal refunds and input adjustments.

“A cluster of fake companies were created during 2008 to 2011 in various regional tax offices to issue fake and flying invoices to plunder public money,” the official added. “Though companies were blacklisted, the cases couldn’t properly be pursued due to life threats to tax officials and reluctance by the tax authorities.”

The official said there are plenty of evidences against the individuals involved in fake companies but “tax units remained silent due to unknown reasons”. In August 2014, the FBR received substantial evidences, including details of beneficiaries of illegal refunds, against Western International from a bank. A branch manager and a cashier had submitted written statements about clearance of refund cheques issued to Western International.

Western International in connivance with other 151 units rendered more than seven billion rupees losses to national exchequer through obtaining refunds on fake invoices.

In early 2014, some senior officers of the RTOs sent a report to the then finance minister, FBR chairman and other authorities mentioning the involvement of tax officials in the scam.

The report said the three RTOs in Karachi blacklisted the sales tax registration of about 4,000 individuals under section 21 (3) of the Sales Tax Act 1990 as they were involved in tax fraud.

“But no such coercive or corrective measures have ever been taken by the RTOs to recover the evaded sales tax of about Rs40 billion and income tax of about Rs88 billion, besides forge/bogus sales tax and income tax refund awarded with the collaboration of some senior tax officials,” the report said.

The exceptional report further noted that delinquent intention of the Inland Revenue officers were evident in the fact that “no such income tax assessment or re-assessment order has ever been passed against such bogus or so-called purchases made from blacklisted suppliers / transactions”. Tax officials advised the FIA to trace computers used to file online returns to snare conmen.

(This news/article originally appeared in The News on October 7th, 2018)